Retrospective GST Registration Cancellation Can’t Invalidate Genuine ITC Claims: Calcutta HC

The Calcutta High Court, in Jyoti Tar Products Pvt. Ltd. vs. Deputy Commissioner, State Tax, Shibpur Charge WBGST & Ors., ruled that Input Tax Credit (ITC) cannot be denied solely due to the retrospective cancellation of a supplier’s GST registration. The petitioner, Jyoti Tar Products, had claimed ITC on purchases from a supplier whose registration was later canceled retrospectively. The tax department rejected the petitioner’s claim, leading to a legal challenge. The High Court found that the petitioner had fulfilled all conditions under Section 16(2) of the GST Act, including holding valid tax invoices, paying taxes to the government, filing returns, and physically receiving goods. The ruling emphasized that the department did not properly assess evidence such as invoices, e-way bills, bank statements, and GSTR-2A records. The court cited previous judgments supporting the principle that retrospective cancellation does not invalidate legitimate ITC claims. The demand order was quashed, and the matter was remanded for fresh consideration. The case highlights the importance of maintaining proper documentation and ensuring compliance with GST regulations to defend ITC claims effectively.

Jyoti Tar Products Private Limited Vs Deputy Commissioner (Calcutta High Court); IA No. CAN/1/2024; 14/01/2025

The Calcutta High Court in the case of Jyoti Tar Products Private Limited vs. Deputy Commissioner, State Tax, Shibpur Charge WBGST & Ors. quashed the GST demand order u/s74 which was arises due to retrospective cancellation of the supplier’s GST registration from where the petitioner purchases the goods.

The High Court ruled that the purchaser’s right to claim Input Tax Credit (ITC) cannot be denied merely on the ground that supplier’s GST registration of the petitioner was retrospective cancelled by the department. If the purchaser has fulfilled all legal requirements under Section 16(2) i.e. Eligibility and conditions for taking input tax credit of the GST Act.

We have given the snapshot of dates for better understanding.

1. The GST department issued a pre-show cause notice under Section 73(5) of the WBGST/CGST Act on 16.08.2023 to Jyoti Tar Products P Ltd., alleging that the company had claimed ITC on purchases from non-existent suppliers whose registrations were retrospectively cancelled.

2. The petitioner filed a reply on 06.10.2023 against pre-SCN, stating that they had purchased goods from enterprises whose registrations were active at the time of purchase which was later cancelled by the department retrospectively.

3. Petitioner also said that all the purchases were properly recorded in their books, and the ITC was claimed based on GSTR-2A data. Payments were made via bank transactions, waybill were properly generated and goods were actually moved and accordingly all the necessary documents such as Invoices, E-Way bills, kata slips, and Bank Statements are enclosed as a proof as genuine transaction not any fictitious transaction.

4. The department was not satisfied with the above reply and issued a Show Cause Notice on 26.12.2023, reiterating the same allegations as stated in pre-SCN.

5. The petitioner again submitted a detailed reply on 26.02.2024 with the same reply which they have submitted for pre-SCN and attached all the supporting documents.

6. The department passed an order confirming the demand under Section 74(9) on 07.2024, rejecting the petitioner’s submissions.

7. The High Court observed that the department should have consider the real impact of the retrospective cancellation of the supplier’s GST registration on the purchaser’s ITC Claim and whether the purchaser/appellants have proved movement of goods or not.

The High Court ruled that ITC cannot be denied if: –

The supplier’s registration was valid at the time of the transaction.

The purchaser/appellants had complied with all the rules of Section 16(2) of the GST Act by:

(a). Possessing valid tax invoices.

(aa). Outward Return i.e. GSTR-1 u/s 37 is filed by the Assessee (Inserted in 2022)

(b). Received the goods physically.

(ba). ITC is not restricted in GSTR-2A/2B u/s 38

(c). Tax is Paid to the Treasury/Government

(d). Summary Return, i.e. GSTR-3B is filed by the Assessee.

The High Court also stated the fact that the authority did not consider the appellant’s evidences which includes Tax invoices, e-way bills, kata slips, bank statements, and GSTR-2A records, the movement of goods and their authenticity.

The petitioner cited several judgments, including:

• M/s. Shraddha Overseas Pvt. Ltd. vs. Assistant Commissioner of State Tax (MAT 1860 of 2022) – The High Court ruled that retrospective cancellation of a supplier’s registration cannot invalidate ITC if the purchaser had fulfilled all compliance requirements.
• State of Maharashtra vs. Suresh Trading Company (1998) – The Supreme Court held that retrospective cancellation of a supplier’s registration cannot affect the rights of a genuine purchaser.
• LGW Industries Ltd. vs. Assistant Commissioner of State Tax (MAT 855 of 2022) – The Court ruled that retrospective cancellation of GST registration does not invalidate ITC claims of the purchaser.

Judgment: The Calcutta High Court quashed the adjudicating authority’s order and remanded back the matter for fresh consideration on merits.

Important Point, Due date and Notification which might be handy in understanding the case:

• Order under Section 74(10) of CGST Act can be issued from the 5 years from the date of annual return. (Notice u/s 74(2), at least 6 months prior to passing Order u/s 74 i.e. 4 and Half years from the Annual Return)
• Due date for Annual return for FY 2018-19 was 31/Dec/2020 as last extended by the Notification No. 80/2020-CT dated 28/10/2020.
• So accordingly, notice u/s 74 for FY 2018-19 should be issue on or before 30/06/2025 (6 month before expiry of 5years from the date of Annual Return)
• So again, Order u/s 74 for FY 2018-19 must be passed on or before 31/Dec/2025.
• In present Case, SCN u/s 74(2) is issued on 26/12/2023 and order u/s 74(9) is passed on 10/07/2024, both are under due date and also gap of at least 6 months in between Notice and Order is fulfilled.

Important Point to be noted in relation to appeal: The petitioner had challenged the above order by filing Writ Petition having WPA 23741 of 2024 on 11.11.2024 (Link is given below) which was disposed of by the High court on the ground that since the petitioner has already an alternate remedy (i.e. Appeal to Appellate Authority) is available with them, so no Writ was required to be filed.

Yet, the petitioner again appealed in the High court, despite the availability of an alternate remedy. The High court this time accepted the petition and allowed the appeal. Th courts usually avoid entertaining writ petitions when alternate remedies (like appeals) are available. However, in this case, the High Court made an exception which might be for the following reasons: (Below are Personal Opinion on my understanding)

1. Violation of Natural Justice: The Court noticed that the demand order was based on retrospective cancellation of the supplier’s registration, which is a substantial legal issue warranting judicial intervention

2. The High Court also found that the department did not consider all the evidence properly, which is also the violation of natural justice.

3. Also, the judgment did not speak about the physical visit or the petitioner was not given a proper opportunity of being heard, Violation of Natural Justice.

Conclusion

The Calcutta High Court’s ruling in the Jyoti Tar Products P Ltd. case passed verdict that retrospective cancellation of supplier registration cannot nullify a valid ITC claim of any taxpayer. The court asked the authorities to consider all relevant evidence and legal precedents before denying ITC claims.

 Key Takeaways from the Judgment:

1. ITC Cannot Be Denied Solely Due to Retrospective Cancellation as long as the purchaser complies with Section 16(2), their ITC claim remains valid.

2. To defend ITC claims, taxpayers should maintain detailed records, including:

• Tax invoices/Debit Note
• E-way bills
• Bank statements/Payment proof via Bank
• Proof of goods movement (kata slips, transporter records)
• Proper Reconciliation of GSTR-2A/2B with book

If you face a similar situation, consult a GST expert or legal professional to protect your rights and challenge wrongful demands effectively.

Refrences

• Jyoti Tar Products Private Limited Vs Deputy Commissioner (Calcutta High Court); IA No. CAN/1/2024; Dated: 14/01/2025
• Jyoti Tar Products Private Limited & Anr. Vs Deputy Commissioner, State Tax, Shibpur, WBGST & Ors. (Calcutta High Court);W.P.A 22106 of 2024; Dated: 13/12/2024
• Jyoti Tar Products Private Limited & Anr.Vs. The Deputy Commissioner, State Tax & Ors. (Calcutta High Court); WPA 23741 of 2024; 11.11.2024
• Shraddha Overseas Private Limited Vs Assistant Commissioner of State Tax (Calcutta High Court); M.A.T No. 1860 of 2022; 16/12/2022
• Supreme Court on Suresh Trading Company vs State of Maharashtra ; Equivalent citations: 1996(3) SCALE536, (1997)11SCC378,
  [1998]109STC439(SC), AIRONLINE 1996 SC 873  
• APN Sales and Marketing vs. Union of India & Anr. (Delhi High Court); W.P.(C) 13177/2024; 19.09.2024

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